We interview Bill Henderson, former president of Tier Three Brokerage before being acquired by Henry Schein in 2021, and discuss effective strategies for buying or selling a dental practice in Canada, questions and answers below.

Bill has years of experience in the dental industry. He and his team have sold thousands of dental practices across the country and have worked with some of the most successful dentists in North America. He takes the time to share valuable insights on buying, growing, and selling a dental practice.

How has COVID changed dental practice dynamics?

Nick: Bill, right now we’re in the middle of COVID. The whole economy is up in the air. But what’s going to happen from a dental industry standpoint? Is it a good time to buy a practice? Is it a good time to sell? 

Bill: So this may shock and amaze you, but the answer is: it depends. There is a very robust market for selling a practice right now. One thing that hasn’t changed is that there are far more buyers than practices for sale. So, it is still a great time to sell a practice.

But a deciding factor in how well a practice will sell is how well it recovered from COVID closure. If the practice has come racing back from July to February, it should sell for the same price, or an even higher price, than it would have pre-COVID.

On the other hand, if a practice has struggled to come back, it’s important to bring it back to where it was pre-COVID. At that point, it should sell for around the same price it would have sold for before COVID. If profits have dropped significantly, the practice probably won’t go for the amount it would have before COVID. 

In short, it’s very situationally dependent, but there are some buying opportunities. Let’s face it, COVID has not changed the incidents of carries in the population. COVID doesn’t prevent the need for root canals, and it doesn’t prevent abscesses. On the contrary, it’s probably contributed to dental problems, because fewer people have been going in for routine care. So there are opportunities to gobble practices that are underperforming simply because of the approaches the offices have taken.

Nick: Let’s say I’m a young dentist buying my first practice. Maybe I’ve been an associate for a couple of years. What I’m hearing now during COVID is the principals are taking on more work and they need a bit more security. So as an associate, I don’t get as much work thrown at me. I start thinking that now is a good time to buy a practice. As a young dentist, should I buy a practice in a big city like Toronto, or is it better to buy a practice in a small town? 

Bill: The most important thing is to buy the right practice. That consideration overrides the practice location. Small towns tend to offer better business opportunities than big cities. The defining issues of dental practices today are the oversupply of dentists and patient scarcity.

Often, small towns offer a  better ratio of patients to dentists. You want to look carefully at the transition plan because, in small towns, everyone knows the other person’s business. But with the right transition plan and a supportive owner, small towns are generally better opportunities. There may be lifestyle trade-offs. But, you know marketing costs in a small town can be quite different than marketing costs in a big city.

Is This a Better Time to Buy or Sell a Practice?

Nick: In cities, people move in and out all the time. That’s especially true in Toronto, where many young professionals live. So when you open a practice, while many patients are looking for dentists, they might not be there in two or three years, because they move on to another job. So you’re always having to spend more money to acquire new patients.

In small towns, the cost to acquire new patients is more favorable, because people in small towns tend to stay there. But the problem is that there aren’t a million people looking for a dentist. In a small town, people have lived there for multiple generations. Many of them already have a family dentist. 

So, unless a dentist is retiring, there isn’t a flood of people looking for a brand new dentist every week. However, if you can ride out the lack of patients in the beginning and establish yourself in that community, you’re going to have a thriving practice for a very long time.

Bill: Yeah, and I would also distinguish between buying a practice and setting up a practice. Some of the happiest purchasers we’ve seen are the ones who have bought a practice in a small town and established themselves.

If you’re looking at setting up a practice, the key is to find an opportunity where there are a lot of new potential patients. Try to find a place with a lot of new home construction. Unless a town is severely underserved and people are looking for a new dentist, you’ve got to pick a location with many potential new patients.

Is It Better to Buy an Existing Practice, or Build a Practice from Scratch?

Nick: I’ve seen dentists buy an existing practice and take over the patients, while other dentists create a brand new practice from scratch. Often, they pick one of those options without really understanding what they’re getting themselves into. There are advantages and disadvantages to each situation. From your perspective, what are the pros and cons of each approach?

Bill: The number one success factor for every dental practice in the country is patients. You either need to already have patients or be able to attract them in large numbers if you want a  dental practice to succeed. The defining issue in the industry is that there are too many dentists and not enough patients to go around. So buying an existing practice with a large, robust patient base is a much lower-risk approach than starting a new practice.

If you plan to start a new practice, you need to be confident in your ability to attract large numbers of patients. Dentistry is not like running a restaurant. No one has ever looked at their spouse and said: “Gee, honey, a new dentist opened up around the corner, let’s go try them out.”

The other mistake I see young dentists make is worrying too much about the practice’s assets and not enough about the patient base. I tell people all the time that you can buy a practice with beautiful new equipment and wonderful leasehold improvements, or you can buy a practice with a lot of patients and old equipment. The practice with a lot of patients and old equipment might be a bit rundown, but you’re going to be busy from day one. 

If you focus on the assets and not the patient base, after you’ve treated your cousin and your mother, you’ll be sitting there twiddling your thumbs, worried about when the bank is going to call. So it’s all about patients.

Nick: I agree with that. I’ve seen many startup practices spend a lot of money on building a beautiful office, thinking that once they put the open sign up, there’s going to be a line of people the next day. There aren’t a million people looking for a dentist every day. 

If you spend money on marketing, you will acquire patients at a lower cost compared to buying all the patients outright. But it might take you two, three, or even four years before you reach the same level of a dental practice with 1500 or 2000 patients. From a marketing perspective, it’s easier to take an existing practice with a decent patient flow and start marketing to existing patients.

So you’re right, you will be busy from day one. On the other hand, If you start up a new practice, you’ve got to have the cash to sustain your lifestyle for two or three years until the practice can start paying you a good salary.

Bill: Yeah, when you’re modeling for a start-up, you need to model in a lot of money for marketing. And you need to work with someone with a proven ability to attract new patients to a practice. 

The only reason I’m doing this Q and A is that I’ve seen Revup Dental do that again and again. So, to anybody reading this, if you can build a practice from scratch and rapidly fill it with patients economically, you’re better off than buying a practice from me. But that takes a unique skill set, a solid business plan, and a great location. And you’ll need the backing of someone who knows how to market to attract new patients in big numbers. Otherwise, you’re going to have empty chairs.

Nick: Yeah, we drive a lot of patients. But we tell everyone that if they have a choice, they should buy a practice with existing patients. It is much easier to take a practice that has 1000 to 1500 patients and ramp up to 2000 or 2500 than to start with a brand new practice where nobody knows you and Google doesn’t trust you. 

There’s no magic marketing pill. We can’t simply come in and sprinkle some marketing dust on your start-up and make it successful overnight. It usually takes quite a bit of time.

Bill: If you start with a patient base of 1000 or 2000 patients, your main source of new patients is going to be referrals from those satisfied existing patients. That’s also the cheapest way to acquire new patients. 

So, if you get started with a patient base of 2000 and you get referrals from 5% of that patient base, that’s 100 new patients a year right out of the gate. If you’re starting with zero patients, that’s zero referrals right out of the gate. So, it’s much easier to start with a patient base and layer an effective marketing plan on top of that. 

That’s how people buy older, tired practices with 1000 patients and double the patient base in three or four years. A new dentist arrives and starts to drive referrals from the patient base before bringing in a marketing agency to get an effective marketing plan in place.

What Factors Help Buyers Determine Whether or Not to Purchase a Practice?

Nick: Let’s say I’m looking to sell my practice in the next 3 to 5 years. As a dentist, what should I focus on? What are the metrics that a buyer values that will give me a higher valuation on my practice, versus things that nobody cares about? 

Bill: There are two factors that every buyer is going to look at before purchasing a dental practice: the size and nature of the patient base and the quality of earnings. So, if you want to build up the value of a dental practice, start by increasing the patient base and increasing the earnings. 

Increasing your patient base doesn’t just mean attracting new patients, but also ensuring that your recall system is working effectively. When it comes to building earnings, a mistake I see many dentists make is thinking that a dollar is a dollar. Every incremental dollar of hygiene adds more to the value of a practice than a dollar of dentistry.

The wonderful thing about building a stronger hygiene program is that it improves the patients’ oral health. It also improves your business and the dental practice resell price for as long as you own it. But, most importantly, it improves patients’ oral health. 

I would not advise anyone to invest in a lot of new equipment. Earnings drive the value of your practice. If the chair in op four is 20 years old but still serviceable, replacing it won’t add value to your practice. 

The things that can add value: cleaning the place up, and doing some leasehold improvement. Curb appeal is a factor. I tell people $10,000 for a new coat of paint and floor coverings can add way more value than $50,000 in equipment.

That’s not going to change earnings. Instead, look for equipment and approaches that will build earnings. So, if you’ve got a big practice with the big lab bell, consider adding in-house crown milling. That can add huge value to our practice. Introduce clear aligners, because, whether you like it or not, groups like Smiledirectclub are causing you to lose that revenue.